Venezuela Hyperinflation

Despite the prevailing lack of economic data releases, anecdotal evidence continues to point to Venezuelan CPI heading into hyperinflation territory. With the blackmarket bolivar at around Bs857.58 to the US$ – compared with an official exchange rate of Bs6.30 – it is no surprise that inflation expectations are extremely high. Price controls and domestic caps on profits incentivise producers to either cut output or sell goods abroad. Meanwhile, collapsing oil prices and forex controls mean that the government cannot finance the cost of imports. Chronic shortages are made worse by the huge gap between the official and black market exchange rate: people can now buy goods at government-subsidised prices and then sell them on the black market or at the border with Colombia at a huge profit. This is perpetuating shortages and, therefore, the inflationary spiral. December 6 congressional elections add further political volatility to the outlook. The government has clamped down on opposition leaders and media, but even its core supporters are dissatisfied with the crisis-ridden state of the economy.

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